Accounting: Completing the Cycle

Only available on StudyMode
  • Download(s) : 43
  • Published : February 12, 2013
Open Document
Text Preview
Chapter Nine – Completing the Accounting Cycle
9.1 The Adjusting Process
The adjusting process is important for financial statements to be accurate, up to date, and consistent from year to year. When preparing financial statements, the accountants must ensure that: * All accounts are brought up to date

* All late transactions are taken into account
* All calculations have been made correctly
* All GAAPS have been compiled with
Adjusting Entry – an entry made before finalizing the books for the period to apportion amounts of revenue or expense to the proper accounting periods or operating divisions. For example, the apportioning of wages between accounting periods when the current period ends between two paydays. The entries are made to bring accounts up to date. Why is it necessary?

* Because the ledger is allowed to become inaccurate between statement dates * However, at the end of the accounting cycle, the omissions must be accounted for * If the accounts are not adjusted at this time, a correct net income or net loss cannot be determined What Accounts need Adjusting?

* Adjusting for Supplies Used:
* Adjustment at the end of each accounting period
* One of the accounts that can be inexact between statement dates * Accounts are supplies (balance sheet- asset) and supplies expense (income statement – expense) * Adjusting for Prepaid Expenses:

* It’s an item paid for in advance
* Requires special accounts treatment
* Most common example is insurance
* Asset account (balance sheet) and expense account (income statement) is used * Adjusting for Late- Arriving Purchase Invoice
* Bills for purchased goods and services may not arrive in the correct fiscal period * However, it must follow the Matching Principle
* To follow GAAP, accounts payable is used to cover for expenses * Adjusting for Depreciation:
* Learned later on

Journalizing
* Beware of purchase year and fiscal period
* An expense can only be accounted for up to 12 months (Matching Principle) * One or more entries must be made for the remaining months in fiscal period(s) 9.2 Adjustments and the Expanded Work Sheet

* Are first recorded on the work sheet
* As the work sheet is prepared, the adjusting entries are calculated and recorded into the section headed Adjustments * Adjustments section requires two addition columns on the work sheet * Work sheet is balanced and finalized before any adjusting entries are recorded in the accounts Adjusting for Supplies

* The supplied figure on a trial balance can be inexact because supplies are used daily, but not recorded * To calculated what the Supplies figure should be, an account clerk takes a physical inventory to prepare a list * To change the balance in the Supplies account from the completed adjusting process, calculate the difference between the figures and use the new figure for the adjusting entry i.e. 2004DR.CR.

Dec. 31Supplies Expense 954.90
Supplies 954.90
* Taking a physical inventory of supplies involves counting and valuing all of the items on hand * If an account name does not appear on in the trial balance, it must be written below * Numbering the adjustments with a small, superscript number will help the adjusting entries to be organized Adjusting for Insurance Used

* Figure for Prepaid Insurance in trial balance, is out – of – date; therefore, the balance in the account must be made equal to the value remaining in all of the unexpired insurance policies at the statement date * The up to date figure is calculated by the means of an insurance listing * The amount remaining belongs to a future period and is the amount that should appear on the balance sheet * the amount used, is the figured used in the adjusting entry i.e. 2004DR.CR.

Dec. 31Insurance Expense2 494
Prepaid...
tracking img